- Westminster's hotly anticipated tax day took place on 23 March
- The government kicked business rates reform down the road but said it would reduce administrative burdens for those dealing with IHT
- Investors' Chronicle highlights some of the top takeaways from the proposals
Government shies away from overhaul of trust taxation
The government has shied away from any immediate overhaul of the way trusts are taxed, stating that it will instead review specific areas on a “case-by-case” basis for now.
Having consulted on how such vehicles are taxed between 7 November 2018 and 28 February 2019, the government has now published a summary of the responses, adding that these “did not indicate a desire for comprehensive reform of trusts at this stage”.
“The government will keep the issues raised under review to ensure that its long-term approach to the taxation of trusts meets its objectives,” the summary of responses added. “In the shorter term, the government will continue to review specific areas of trust taxation on a case-by-case basis, with responses relating to those areas forming part of the consideration.”
Once viewed as a way to shield wealth from the taxman, nowadays trusts are often used by individuals who wish to pass on assets while retaining a level of control over them. However, trusts do have some advantages relating to inheritance tax (IHT).
Most transfers of assets into trusts are subject to an immediate 20 per cent entry charge, but only if the amount transferred across within the last seven years exceeds the individual’s IHT nil rate band of £325,000. Individuals can therefore set up trusts up to this amount, tax-free, every seven years.
The government noted that a “significant number” of respondents to the consultation had criticised the immediate entry charge, saying this added complexity, made trust usage less attractive and produced results respondents did not consider “neutral”, in terms of the tax treatment of trusts versus alternative approaches. Some added that the charges were out of step with cases where individuals either held onto the assets or made an outright gift, given that unlimited gifts can be made to other individuals before death without incurring an IHT charge.
The “relevant property” regime, where a charge of up to 6 per cent is levied on a trust every 10 years to collect an amount over 30 years that roughly aligns to an IHT bill on an individual’s death, also came up. Respondents warned that some double charges could arise under the regime. They also criticised the 6 per cent rate, arguing it should not be raised, as well as the 30-year period. Some also called for a revised system of charges for trusts that move capital to minors or young adults.
The responses also covered a variety of other areas, including the reporting and disclosure regime for those using trusts. DB
Social Investment Tax Relief
The government announced in the Budget on 3 March that it is extending the operation of Social Investment Tax Relief (SITR), which aims to support social enterprises in the UK that are seeking growth investment, to April 2023. On 23 March, or 'tax day', it said that part of the reason for doing this is because it recognises that, due to the ongoing effects of Covid-19, now is a difficult time for social enterprises, many of which are supporting communities across the UK through the pandemic.
This will continue availability of income tax relief and capital gains tax hold-over relief for investors in qualifying social enterprises. This measure will be legislated for in the Finance Bill 2021.
“SITR was due to come to an end in April 2021,” says Alex Davis, chief executive of Wealth Club. “Whilst its objectives are no doubt worthy the scheme has been spectacularly unpopular with investors.”
To date, around 110 social enterprises have raised £11.2m through SITR. In 2018-19, around 30 social enterprises raised £4.5m through SITR, up from 2017-18, when 20 social enterprises raised £1.5m. This take-up has been lower than anticipated. LW
Business rates reform kicked down the road
Respondents to the government’s consultation on business rates reform have called for a cut in the fixed rates used to determine tax bills, with no annual uprating and no resetting at revaluation.
However, the government eschewed proposing any firm reforms on the business rates system and said it would set out its final recommendations in autumn.
Feedback to the call for evidence ranged from a cut of up to 50 per cent in the ‘multiplier’ used to calculate the rates bill, to a freeze at the current level.
Business rates are based upon a property's ‘rateable value’, which represents the estimated open market annual rental value of the premises at a set point in time. A ‘multiplier’, currently set at 51.2p for properties with a RV of £51,000 or more, is applied to that value to determine the rates bills, before any relief measures are taken into account.
Retailers and commercial landlords previously pushed for fundamental reform of the business rates system, following the government’s initial call for evidence in July. Landlords stand to benefit from rates being reduced not only by rent payments potentially becoming more affordable, but also because they have remained liable to pay the tax on empty premises through the pandemic.
Most respondents also called for more frequent revaluations of ‘rateable values’ - which represent the estimated open market annual rental value of the premises at a set point in time - from every five years to every three. Most local authorities also supported three-yearly revaluations.
However, views were split on how effective a 2 per cent online sales tax would be. While some said it would be an opportunity to ‘level the playing field’, others warned that retailers would pass on the tax to consumers, “increasing prices and affecting people’s disposable income and quality of life”. A large majority were of the opinion that click and collect should be carved-out of an online sales tax. EP
IHT red tape removed
The government said it will reduce “administrative burdens” for those dealing with inheritance tax (IHT). Reporting regulations are to be simplified later this year so that from the start of 2022 more than 90 per cent of non-taxpaying estates will no longer have to complete IHT forms for deaths when probate or confirmation is required.
A current temporary loophole allowing those dealing with a trust or estate to provide an IHT return without a physical signature from all involved will also be made permanent.
Reporting regulations will meanwhile be updated to clarify a requirement for estates to submit an IHT account where the deceased was never domiciled in the UK but had indirect interests in UK residential property. DB
